Trader Talk

The factors behind today's sell-off

Traders work on the floor of the New York Stock Exchange.
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Stocks are experiencing their weakest day in over a month, with 6 stocks declining for every 1 advancing. The CBOE Volatility Index, up 15 to 16 percent and change, is experiencing its first double-digit gain since the end of September.

Several factors have come into play:

1) Much of the decline is attributable to continuing fallout from the strong jobs report and the increasing likelihood the Fed will raise rates in December. Interest rate sensitive groups like REITs, emerging markets andhome construction are down roughly 2 percent, though utilities which were hit hard last week, are down only fractionally.

The head of the San Francisco Fed, John Williams, said over the weekend there were good reasons for the Fed to begin raising rates, though he said the data would dictate "when."

2) Stocks are relatively expensive after a six-week rally. Forward P/Es are relatively high: at current estimates of $118.62 for earnings for the S&P 500, the full-year P/E is 17.5, well above the 10-year average of 14.2, according to Factset.

For the fourth quarter, earnings expectations are also declining at a rate greater than Q3.

3) Commodity prices—particularly oil and copper—are continuing to indicate oversupply and slower global growth. Copper remains near the lowest level since 2009; oil is near the bottom of its 2-month range. Speaking of slower growth, overnight China reported that exports in October fell for the fourth consecutive month.

4) Department stores are notably weak, with many off 4 to 5 percent. They will all begin reporting this week: Macy's Wednesday, Kohl's and Nordstrom Thursday, and JC Penney Friday. Earnings estimates are coming down for the group. Citigroup lowered forecasts for Macy's and Kohl's Monday.